LETTER OF THE LAW
Column
by

A law criminalising the failure to prevent bribery could prove an effective tool in Hong Kong

The UK has shown the way forward with legislation to make companies responsible for the corrupt acts of people who act on their behalf

PUBLISHED : Monday, 06 February, 2017, 4:18pm
UPDATED : Monday, 06 February, 2017, 10:04pm

In its mission statement, the Independent Commission Against Corruption commits itself “to fighting corruption through effective law enforcement, education and prevention”.

Corruption, however, remains a major problem in Hong Kong, with the ICAC’s overall caseload, by the end of 2015, standing at 1,737, much of it business-related, and this has had ramifications.

In Transparency International’s Corruption Perception Index for 2015, Hong Kong secured 75 points out of 100. Although Hong Kong’s standing, which is on a par with Japan’s, is well above the rest of China (the mainland was on 37 points, Macau on 51 points, and Taiwan on 62 points), it is still well behind, for example, Denmark (91), the UK (81), and Australia (79), which is a concern for “Asia’s World City”. Hong Kong’s global stature, after all, requires the ICAC to be pre-eminent, and its tools must therefore be state-of-the-art.

The ICAC, of course, has some highly effective laws at its disposal, none more so than its “unexplained wealth” offence, for public sector corruption. Often called “draconian”, this was used, for example, against former prosecutor Warwick Reid in the 1990s, when Reid, head of the then legal department’s commercial crime unit, was found to be worth HK$12.4 million, which was disproportionate to his official earnings, and for which he could not account.

The public sector ... is a law unto itself, and the ICAC’s private sector armoury also needs beefing up, which means extending its reach

Reid, who had fixed cases in return for rewards, ultimately pleaded guilty to possessing disproportionate wealth, and was sentenced to eight years’ imprisonment, later reduced to seven years on appeal. Although the law, which places a reverse onus on a suspect to explain how the wealth was acquired, was challenged on constitutional grounds, the courts have upheld its legality, concluding that it is a necessary response to a grave problem, which might otherwise go unpunished.

The public sector, however, is a law unto itself, and the ICAC’s private sector armoury also needs beefing up, which means extending its reach.

In the UK, the Bribery Act 2010 introduced a new offence of failing to prevent bribery, which is every bit as draconian as any of Hong Kong’s anti-graft laws, and arguably more so. A commercial organisation may now be prosecuted if a person associated with it bribes another person with an intention of obtaining or retaining business or a business advantage for that organisation, even if it has no actual knowledge of the crime.

To establish that someone is associated with the organisation, it has to be shown that the person or persons in question (who can be individuals or business entities, including employees, agents and subsidiaries) have performed services on its behalf.

An organisation will only be able to defend itself if it can show that it has in place ‘adequate procedures’ to prevent the bribery occurring

The rationale of this offence is to make the companies themselves responsible for the corrupt acts of people who act on their behalf, which places a heavy responsibility on them to keep their operations clean. An organisation will only be able to defend itself if it can show that it has in place “adequate procedures” to prevent the bribery occurring.

As to what is meant by the “adequate procedures”, the prosecuting authorities have identified six relevant principles to be applied when assessing corporate culpability, namely, proportionate procedures (combating bribery risks), top-level commitment (a culture of zero tolerance), risk assessment (prioritising action in high-risk areas), due diligence (exercising care when entering relationships or markets), communication (including appropriate training and highlighting of values), and monitoring and review (updating procedures as risks evolve).

In 2015, Britain’s Serious Fraud Office used this new offence for the first time, in respect of a bank which failed to prevent alleged bribery by persons associated with it in another jurisdiction. Money was paid to a local third party, to induce government officials to show favour to the bank’s commercial proposals. Although the case was ultimately disposed of by means of a deferred prosecution agreement, under which the prosecution was halted after the bank agreed to fulfil various conditions, the case has, nonetheless, sent a powerful message to the business world that it must be proactive in preventing corruption from arising, or else face prosecution.

This new bribery offence, given its proactive component, would fit very neatly into the ICAC’s avowed policy of combining corruption prevention with effective law enforcement. Bribery is a secretive crime, and the offence places an onus on companies to exercise full responsibility, which means they must have strict procedures in place to deter corruption.

In October 2015, the ICAC commissioner, Simon Peh Yun-lu, said that the ultimate solution to corruption lay, education apart, in constructing “a watertight prevention system to deprive the crime of its breeding ground”. He may, therefore, wish to consider criminalising corporate failure to prevent bribery, as this could significantly enhance the ICAC’s efforts to combat corruption in the private sector.

Grenville Cross SC is a criminal justice analyst